U.S. Expands Aid To Auto Industry

The government expanded its bailout of the nation's troubled auto industry yesterday, announcing a new $1.5 billion loan for Chrysler Financial while Ford Credit said it was in talks to obtain federal aid.

The money for Chrysler Financial will come from the government's $700 billion financial rescue program. Senior officials from the Treasury and Federal Reserve are hoping the assistance, combined with earlier support for General Motors' chief lender GMAC, will keep auto loans flowing until the two agencies can make more funds available for credit cards, student loans and small business loans.

The developments came on a frantic last work day at the Treasury Department, as officials pushed out the door several key deals and announcements related to the rescue program, known as the Troubled Assets Relief Program, or TARP.

The Treasury announced early yesterday that it would give $20 billion in aid to Bank of America and committed to limit the company's losses on $118 billion of troubled assets. The package was modeled on a similar bailout engineered for Citigroup in December. Taken together, the two deals established an approach to how troubled banks may receive help through the TARP in the next administration, department officials said.

Also yesterday, Treasury Secretary Henry M. Paulson Jr. suggested that the government might establish a "bad" bank to take on the troubled assets that lenders cannot sell. The idea was also broached in a speech this week by Federal Reserve Chairman Ben S. Bernanke and is being considered by President-elect Barack Obama's top economic advisers, the government officials said.

Last fall, Paulson told lawmakers that the TARP would be used to buy bad assets. But soon after the bill was approved by Congress in early October, he moved away from the idea to provide more direct aid to financial institutions.

"For me, we made some tough, big decisions without all of the facts," he said in an interview. "Now that we have got more [facts], I feel every one of the major decisions we made were the right ones."

The moves to aid the financing arms of the nation's automakers draw the federal government more deeply into Detroit's troubles.

To date, the government has committed TARP money to provide $17.4 billion for General Motors and Chrysler, $6 billion for GMAC, and now the new loan to back Chrysler Financial.

Unlike Chrysler Financial and GMAC, Ford Credit has been talking to government officials about receiving financing through a separate $200 billion Term Asset-Backed Securities Loan Facility, or TALF, which is being created by the Treasury and Fed to support auto, student and other consumer loans.

"We're still funding our business," said Ford Credit spokeswoman Margaret Mellott, who confirmed the talks, which have been going on for months. "We have strong liquidity . . . It's an ongoing dialogue to free up credit."

Although Ford has said it can survive without federal aid or intervention, it continues asking to be treated the same as its struggling cross-town rivals GM and Chrysler.